Most beverage companies have learned in 2009 that consumers are looking for value on top of the innovative flavors and stand-out packaging they came to expect in better economic times. Arizona Beverages, Lake Success, N.Y., is one company that is reaping the rewards of a value proposition, but the company didn’t adopt the strategy to deal with the current downturn â€” it took the unusual step of pre-pricing some of its products in the mostly upscale ready-to-drink tea category several years ago. What was a surprise success then has turned into an even bigger boon in today’s market.
Arizona is the top-selling ready-to-drink tea brand through supermarkets, drug stores and mass merchandise outlets, excluding Wal-Mart, according to Information Resources Inc., a Chicago-based market research firm. The product is one of a few among the top ready-to-drink tea brands that increased sales through those outlets during the past year â€” by 6 percent, when the category as a whole was flat. Wesley Vultaggio, Arizona’s creative director and son of founder Don Vultaggio, says the value pricing strategy is one of the keys to the brand’s success this year.
“The state of the economy has led our consumers toward value-added beverages like ours,” Vultaggio says. “We have our 99-cent can that we’ve had on the market for almost 10 years now, and now more than ever, I think the consumer appreciates it.”
In 2004, Arizona Chairman Don Vultaggio told Beverage Industry the reason it developed the pre-priced strategy was to prevent retailer mark-up in what was becoming an expensive new age category.
“We believe there is a good segment of the market that says, ‘I need value. I’m a working guy and when I go out and buy lunch, I can’t afford $3 for a drink,’” he said. “So we [pre-priced] cans because cans are traditionally sold cheaper than glass. At the time we did it, it was unheard of in new age; price was up to the retailer. But because of our blue collar background, we said we’ve got to take care of the blue collar guy.”
Today the 23-ounce can is responsible for much of the company’s growth, and while Arizona has kept the pre-priced strategy, it also has moved beyond cans and glass. Earlier this year, it added a $1 pre-priced line of 20-ounce PET products as well. The PET products build on the value concept, but the company says they appeal to a different consumer segment.
“We haven’t found any kind of cannibalization into our cans,” Vultaggio says. “We’ve just found that we’re picking up another segment of the consumer out there that’s looking for a resealable plastic package.”
The 20-ounce line, which the company refers to as the “Tall Boy,” includes seven flavors, many of which also are available in the can line. The PET bottles initially launched in Chicago, Florida and New York, and are moving throughout the rest of the country.
The value strategy may be leading sales growth today, but Arizona isn’t resting on that idea as a way to wait out the recession. The company has ventured into several new products this year, on its own and through partnerships with other beverage companies such as Nestle Waters North America, Greenwich, Conn., and Bigelow Tea, Fairfield, Conn.
With Nestle Waters, the company created a new line of Organic Tea Waters that launched this spring. The line uses both brewed tea and tea essence in its formulation, as well as natural and organic flavors and organic evaporated cane juice as its sweetener. Arizona Tea Waters include four flavors â€” Green Tea, Yumberry Green Tea, Mandarin Orange Green Tea and Pomegranate Green Tea â€” and have only 20 calories per serving.
The initial Northeast launch of the Tea Waters is co-branded with Nestle Waters’ Poland Spring brand, and as the product moves throughout the rest of the country, will be branded under Nestle’s other regional bottled waters such as Ozarka, Deer Park and Zephyrhills.
Vultaggio says the partnership began as a discussion about ideas for an enhanced bottled water. But as tea is Arizona’s mainstay, it did not take long for the concept to turn in that direction.
“As we talked, and over the months, my dad came up with this cool concept of a tea water,” he says. “It’s a subtly flavored water with the tea base. It kind of has the functionality of a tea, but it drinks like a water.”
Arizona also has expanded its partnership with another tea company, Bigelow Tea, with a line of ready-to-drink organic tea products. This time Bigelow took top brand billing. The two companies initially teamed up about two years ago, with Arizona producing a line of ready-to-drink chai teas for Bigelow, and Bigelow creating a series of green tea products in tea bags under the Arizona brand.
The new ready-to-drink organic teas are all green tea-based, and include Original Green, Acai White Cranberry, Lemon Ginger and Mango Lychee flavors. The products in the ready-to-drink line are formulated with a lighter flavor profile to reflect the taste of Bigelow‘s hot tea consumers, while the more robust tea bag line is reminiscent of Arizona’s flavor profile.
Vultaggio says the Bigelow partnership is based on similar company and product philosophies, as well as a mutual respect for what each company does within the tea category.
“They kind of have the same dynamic that we do,” he says. “It’s a great family-run business and they’ve been around for a long time. They do great things in their particular segment of the industry.
“Our philosophy with these partnerships is to kind of spread our wings and reach a lot of different types of consumers and different demographics,” he adds. “With the Bigelow connection, they own that tea bag, hot tea, segment of the industry, which before we started working with them, we had never touched.”
With a full lineup of beverages, Arizona easily could have created the products on its own, but Vultaggio says the partnerships add another dimension to the company.
“Our brand right now is pretty widespread,” he says. “But there are still a lot of segments of consumers out there that either haven’t drank our teas or don’t particularly like sweetened teas … It adds to our diversification and our prestige as a brand. Consumers appreciate it because it just makes it a little more exciting to see, ‘Oh, Arizona is partnering with these guys or those guys.’ I think it just kind of helps business and it helps consumers keep Arizona fresh on their minds.”
It also isn’t a coincidence that both of the partnerships are centered on organic ingredients. Vultaggio says the tea market is gravitating toward organic products and that consumers have been asking for organic options from the company. As well as the organic products it created in partnership with Nestle Waters and Bigelow, the company created organic versions of its Arizona Green Tea with Ginseng and Honey, Pomegranate Green Tea and Yumberry Green Tea.
“The plan is to open up that organic shelf in stores, with the Arizona consumer looking for the organic green tea that they’ve been asking for for years, and we’ve finally produced for them,” he says.
Give it a shot
Arizona recently got into the energy shot category as well, with a different type of partnership â€” this time with nutritional consultant Oz Garcia, who has become the name behind its Fast Shot products. The three-product line includes Rx Energy, A.M. Awake and P.M. Relax formulations. The shots use green tea as their energy base, and depending on the formulation, include additional vitamins, minerals and other ingredients.
“One is our proprietary Arizona formula, which is called Rx Energy, and the other two we worked with a nutritionist named Oz Garcia, who they call a nutritionist to the stars because most of his clients are big name celebrities,” Vultaggio says. “He formulated the other two, an A.M. formula and a P.M. formula â€” one to keep you going and keep you clear during the day, and the other one to keep you relaxed and help you sleep.”
An additional point of difference, he points out, is that the shots are hot-filled, which allows the company to avoid preservatives. In fact, all of Arizona’s products are hot-filled for that reason.
“The consumer is really privy to what kind of products out there are filled with chemicals,” Vultaggio says. “They don’t know the lingo as far as cold-filled or hot-filled, but they can definitely sense what’s all natural and what’s not all natural.”
In an additional attempt to ensure product freshness, Arizona’s PET-packaged products, such as the 20-ounce pre-priced teas and the Arizona Tea Waters, recently moved into amber-colored bottles.
“We take great pains to make sure the product inside our packages stays fresh and isn’t exposed to the elements, which make them taste bad and the product itself to degrade,” Vultaggio says. “So we have these amber bottles that we’ve developed that protect the product from sunlight, and then we nitrogen-flush them so all the oxygen gets out of them and we get the freshest quality product that is the most shelf stable.”
Another new uniquely packaged tea getting ready to hit store shelves is Arizona Kidz tea. The 10-ounce Lemon Tea product is packaged in a mini version of an Arizona bottle that features a ball shape on the top. The company uses the bottle for its Arnold Palmer tea-and-lemonade products, with golf ball graphics covering the ball shape, and the kid-sized version will incorporate a range of sports motifs.
“We have these little baby amber bottles that are pretty cute, and then on top of them we wrap them with different sports balls. So we have a basketball, a baseball and a soccer ball on top of them,” Vultaggio says.
For every six-pack of the Arizona Kidz product it sells, the company will donate five percent of the profits to Operation Smile, a non-profit organization that helps children born with cleft palates and other facial deformities. Package labels describe the organization and its mission.
“It’s one of the charities that’s near and dear to my family’s heart, and we got on board with them a couple years ago,” Vultaggio says. “We decided to create a line of drinks, first in our 34-ounce package, where we would give a certain amount of the proceeds back to the charity. We had some great success with that, and most recently we launched this Arizona Kidz line, and we’re doing the same.”
In addition to its new products, this year Arizona is tackling additional territory outside of the United States, putting a priority on its international expansion.
“In the past, it’s kind of been that stepchild division of our business that no one really paid any attention to,” Vultaggio says.
The company goes to market in Canada through a partnership with Coca-Cola, and in Mexico, it teamed with Grupo Jumex. The partnerships have made Arizona a top-selling tea in both countries. In addition, it is taking its ready-to-drink teas to Europe, introducing its first product, which will be pre-priced at 1 euro, in the Netherlands.
“I think we’ll probably start with our more basic flavors like our green teas, our lemon teas, maybe our pomegranates, and we’ll see how it goes,” Vultaggio says. “But I definitely think there is a consumer out there in Europe, just like there is here, that’s looking for a product like ours.
“We haven’t even hit the surface as far as the things we could do and the kind of products we could sell,” he adds. “It’s definitely an exciting time. Aside from the current success we’re having here in the states, who knows what we could do around the world? There are definitely a lot of opportunities.”